Smoke and mirrors

In 2011 a spectacular jade throne from the Han dynasty sold at auction in Beijing for Rmb220m ($34.9m). It was an important sale in the Chinese art market, although by no means the year’s highest, and the figure contributed to the dramatic assertion towards the end of last year that the Chinese auction market had overtaken the US and the UK to become the world’s leader in art sales. One source, the French site Artprice, assesses the Chinese market share as high as 41.4 per cent; other sources place it at a more modest 30 per cent, but still in poll position.

However, there were two problems with the “sale” of that jade throne. First, it was revealed to be a modern fake; second, it was never paid for. These two events, that of forgery and that of non-payment, either singly or together, are now so common in the Chinese art market as to make the year’s totals – which purportedly show an astonishing rise – highly unreliable. The art market all over the world is famously a game of smoke and mirrors, unregulated and with a huge number of opaque transactions, but the difficulties of accurate reporting from China are especially acute.

IN Arts

The Chinese themselves are alive to the problem. There are some 300 auction houses across mainland China licensed to sell works of art. The scene has exploded in only 15 years or so: officialdom took a hard line against this form of “capitalist trade” until the early 1990s, when the first few companies opened, and by 1996, when the Chinese government passed legislation to recognise the status of art auctioneers, the trade was already worth some Rmb300m ($36m).

But that was nothing to what was to come. In 2010 figures from the ministry of culture put the total value at Rmb573bn ($91bn), rising in 2011 to a mind-boggling Rmb975bn ($154.2bn).

However, the Chinese Association of Auctioneers gives a much lower figure for 2011: Rmb576bn ($88.1bn). And, according to Clare McAndrew’s annual art market report for TEFAF in Maastricht, the CAA has also sounded a strong note of caution. After a countrywide survey of 250 auction houses, it found that of purchases above Rmb10m in the sales of autumn 2010, a full 40 per cent had not been paid for by April of the following year. In other words, close to half of the reported hammer prices turned out not to be real sales at all. The disparity in reporting of such aborted sales may account for the dramatic discrepancies in overall figures.

One of two Chinese bronze animal heads sold at auction in 2009 but never paid for

One celebrated recent case of non-payment for Chinese antiquities in Europe was in 2009, at the Yves Saint Laurent sale in Paris, when two brass animal heads were hammered down at more than €30m but never paid for. This evoked further and rather bizarre issues: the Chinese claimed the works had been looted and should be returned gratis; the buyer, a Chinese auctioneer called Cai Mingchao, claimed that his refusal to pay was a deliberate sabotage of the sale for patriotic reasons.

More recently, at Bainbridges in England the top bidder defaulted on a Qianlong vase whose £51.6m hammer price (with buyer’s premium) set a world record that has turned out to be as ephemeral as its supposed purchaser. Usually, though, non-payments go unreported: the prevalence can only be inferred from a new practice in some of the western auction houses working in Hong Kong which now demand a hefty deposit for the right to bid for high-priced items.

The CAA’s report reveals another strange fact: that in Chinese auctions in 2011 the rate of “buy-ins” – that is, when the item doesn’t reach its reserve – was fully 52 per cent, which is surprisingly high in a market that is supposed to be booming. This is put down partly to “quality-related” issues – a delicate euphemism for those fakes. But some auction houses apparently count buy-ins (which do see the hammer fall in the room, a little bit of auctioneering theatricality) as actual sales: another factor that would hopelessly skew the true picture.

So, what do we know for certain? There is no doubt that the rise in the market has been enormous in the past couple of years. The expanding wealth of Chinese buyers coupled with difficulties in other sectors, such as property, have fuelled a trend towards investing in art. It seems no coincidence that the moment when the Chinese government introduced strict measures to cool an overheated property market, in 2009-10, saw a sudden very sharp rise in art buying.

Because of the faking problem, items from abroad with a traceable provenance are more sought-after. Almost 40 per cent of the highest-priced items on the block in China last year were consigned from outside the country to Chinese houses – foreign auctioneers (to their great frustration) are still not allowed to operate on the Chinese mainland. This, coupled with China’s enormous taxes on art sales, and the fact that the renminbi is not a fully convertible currency, means that the foreign companies’ focus on Hong Kong as an art-trade nexus for the whole region is ever more intense.

The ban on outsiders makes the leading mainland Chinese auctioneers even more powerful, too. According to Wang Tao, senior lecturer at the School of Oriental and African Studies, University of London, the four most significant – Poly International, China Guardian, Beijing Hanhai and Beijing Council – are among the world’s top 10 in terms of turnover. Some observers have suggested that the dramatic rise in art purchasing in the past two years could, however, see an equally abrupt slowdown if the Chinese government introduces the controls on the art market that some consider necessary to combat its growing problems. And there are a few signs that the Chinese art-goldrush is abating: last year’s autumn sales in Hong Kong were less strong than expected, and in April of this year Sotheby’s Hong Kong results totalled $244m as against a mighty $447m in 2011. Christie’s sales, later this month, could be another indication of which way the wind is blowing in this fascinating and unruly market.